Due on Sale Clause

[Brandon L.]

Hi,

I am gearing up to transfer my rental properties into a single member LLC. These properties have mortgages in my name. I am aware that the lender could call the mortgage due but it seems to be extremely low risk. I am also aware that using land trusts can get around this but I am not convinced it is worth the hassle since the privacy benefits offered by a land trust are mostly lost in this particular situation. I have searched a lot on this website and others and a lot of the discussions get into arguments about whether the lender can do this, and if they do will a court allow it, etc. I am not interested in that. Instead, I am hoping for comments from people that have transferred real estate with personal mortgages into an LLC. And from those experiences, was the mortgage called due or not? How many properties have you done this with and how much time has elapsed? Thanks,

Brandon

[Robert Gilstrap]

@Brandon L. Not sure what you mean by privacy benefits of a trust being lost in this situation. The privacy benefits of a trust are never lost unless you open your mouth and tell someone who is behind the trust.

I own about 40 properties personally. I have 3 properties where the mortgages are in my personal name and the rest I bought subject to so the mortgages are in dozens of other peoples names. Every single property I own has been transferred either into an LLC or into a trust. Some I transferred as far back as 15 years ago so hope that helps on the due on sale thing. A bank will never call a loan due for a transfer to an LLC if you are making your payments. Even if they did you transfer it back to your name to satisfy them and your good again.

I always laugh that somehow everyone thinks banks are somehow connected by a wire to the deed room in every county in America and some alarm goes off when you file a deed changing to an LLC. Banks have no clue when this is done nor do they care. Banks are interested in one thing and one thing only; getting their payments.

@Joseph Hoot if you are going to transfer the deed and you have a title insurance policy you need to get a rider covering the LLC or else your title insurance coverage goes away on the transfer and you also would not do a quit claim ever if you want title coverage to continue. Must always be a warranty deed.

My personal setup is each property in its own land trust with the beneficiary of the land trust being one of my LLC's. I have about 12 LLCs spread across all properties.